Coors, Molson Confirm Merger Talks

NEW YORK – Adolph Coors Co. (RKY), the No. 3 U.S. brewer, is engaged in talks to merge with Canadian brewing company Molson Inc. and create a more powerful rival to market leaders SABMiller and Anheuser-Busch (BUD), the companies said on Monday.

The negotiations involve structuring the transaction in a way that would offer little or no premium to shareholders of either company. The terms being discussed would include naming Molson Chairman Eric Molson the combined company's chairman, while Coors Chief Executive Officer Leo Kiely would be CEO, the companies said in a joint statement.

An announcement "could be made in the near future," they said, but they also warned the talks could break down at any time. Combined, the two companies would boast a market capitalization of more than $6 billion.

The deal would solve expansion issues for both companies, which have watched larger rivals snatch up competitors around the globe over the past few years.

"Global beer is consolidating at a fairly healthy clip," said Raymond Lai, analyst with Raymond James Ltd. "And certainly from a purchasing power point of view, a bigger beer company would benefit from purchasing advantage as they do much more global sourcing of their raw materials, which is a large component of cost structuring."

Denver-based Coors has struggled of late to overcome a health-conscious shift away from beer to wine and distilled spirits. Unlike other brands, Coors has yet to introduce a successful low-carbohydrate beer, and the company's Coors Light brand is losing share to SABMiller's Miller Lite and Anheuser-Busch's Bud Light.

Montreal-based Molson, Canada's oldest brewer, has been searching for ways to gain a leg up on rival Labatt (search), owned by Interbrew. The company bought Brazil's Kaiser brewery in 2002 to expand its reach into South America, but the venture has proved to be a drain on its profits.

Coors and Molson already have joint ventures to distribute each other's products in the United States and Canada so it is hard to see how a combination would benefit them, said Benj Steinman, editor of industry trade newsletter Beer Marketer's Insights.

"It makes them bigger on the global scene," Steinman said. "But no major synergies are immediately apparent."

Others agreed that while the combination would provide expanded market presence , the deal seemed to provide little growth momentum.

"There would be some short-term cost synergies but long term strategic benefit I don't see a lot of change from the status quo," said Michael Van Aelst, analyst with CIBC World Markets. "They both already have significant relationships with each other in North America. I don't see strategic benefit to this type of a merger."

Sources close to the talks said the issue of who would run the combined company had been a significant snag in negotiations thus far.

Coors' founding family controls about one-third of the company's voting stock. But after four generations of being family run, the chain was disrupted recently by Chairman Peter Coors' declaration that he would take an unpaid leave of absence to run for a U.S. Senate seat.

Molson's leadership status is equally in flux. The 218-year old company saw deputy chairman Ian Molson quit in June after a dispute with the company's chairman and his cousin, Eric Molson, splitting the Molson family in two.

Coors shares climbed as much as 9 percent on Monday before closing up $2.54, or 3.5 percent, at $75.56 on the New York Stock Exchange on word of the talks. Molson shares climbed 85 cents to close at C$33.45 on the Toronto Stock Exchange.